U.S. Semiconductor Stocks: Significant Pullback Soon Before New Upleg
City Index | Jan 12, 2020 06:48AM ET
h2 Medium-Term Technicals SOXX/h2
Intermediate support: 247.10
Pivot (key support): 237.85
Resistances: 265.10/55 & 276.25/279.20
Next support: 218.00 (major)
h2 Directional Bias (1 to 3 months)/h2The major uptrend of the PHLX Semiconductor ETF (NASDAQ:SOXX) has been in place since the Dec. 26, 2018 low of 144.79. Right now, with U.S.-Iran skirmish on the back burner, and the focus will now turn towards U.S.-China diplomatic trade relations.
China has confirmed that Vice Premier Liu He, the top trade negotiator/special envoy will be heading to the U.S. on Jan. 13 to sign-off on the official Phase One trade deal in the White House on Jan. 15.
Risk assets such as stocks have staged a strong move up Friday 09 Jan with all the major U.S. benchmark stock indices (S&P 500, Nasdaq 100 & DJIA) hitting more fresh all-time highs. In fact, this piece of positive news flow is not a surprise as the Phase One trade deal agreement has already been made in the “limelight” since Dec.12 2019 where the U.S. administration has agreed to the terms in principal with a suspension on a new wave of 15% U.S. tariffs on about US$160 billion of Chinese consumer goods that was scheduled to take effect on 15 Dec 2019. In return, China suspended additional tariffs on U.S. farm and automobiles products.
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Thus, the price action of the SOXX (U.S. semiconductor sector that is a key beneficiary on a de-escalation of U.S-China trade tensions- see first chart) may continue to see a further rally to target the 265.10/55 resistance next week before a meaningful pull-back of 7% to 9% to take shape towards the key medium-term pivotal support of 237.85 as this piece of “good news” have already been “priced in” before the next potential impulsive upleg sequence materialises to target 276.25/279.20 resistance next.
On the other hand, daily close below 237.85 put the bulls on hold for deeper corrective pull-back towards the major support at 218.00 (former range resistance from 24 Apr/12 Sep 2019 & lower boundary of the ascending channel from Dec. 26 2018 low).
h2 Key Elements/h2- Since its Dec. 26 2018 low, the price action of SOXX has continued to evolve within an ascending channel with upper boundary now acting as a resistance at 279.20 which also confluences with a Fibonacci expansion cluster.
- The daily RSI oscillator remains positive above its corresponding support zone but it is coming close to an extreme overbought level of 75%. These observations suggest that medium-term upside momentum is at risk of reaching overstretched condition soon and may see an imminent pull-back in price action.
- Elliot Wave/fractal analysis suggest that the Index is coming to the potential end of its intermediate degree wave 3/ bullish upleg sequence in place since 05 Aug 2019 low with a likely end target at 265.10/55 (Fibonacci expansion cluster). Therefore, it may start to see a corrective down move wave 4/ sequence unfold next.
- The 237.85 key medium-term support its defined by the former swing high area of 15 Nov 2019, Fibonacci retracement cluster and the 55-day Moving Average that has saw significant price reactions on it in the past since 03 Dec 2018.
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